Springer Science IPO: subscription needs research

June 6, 2013

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

People who want to keep up with “Siberian Advances in Mathematics” and the “American Journal of Potato Research” must pay up for the privilege. Costly journal subscriptions lie behind the success of academic publisher Springer Science+Business Media. But investors should do some serious research before subscribing to what could be a fully priced Frankfurt IPO.

Springer, which also publishes e-books, is majority owned by EQT, a Swedish buyout firm that bought it from rivals for a bargain 2.3 billion euros in 2010. Springer now wants to raise 760 million euros selling new shares to pay down debt. The group, which is likely to make about 380 million euros of EBITDA next year, would be left with about 1 billion euros of debt, a person familiar with the matter says.

Larger rival Reed Elsevier has an enterprise value of about 9.2 times 2014 EBITDA. At that multiple, Springer’s equity would be worth about 2.5 billion euros. New shareholders would hold about 30 percent.

Prospective buyers must decide on the size of an IPO discount – typically 15 percent or so – and whether Springer’s narrower focus than Reed, which is also big in legal publishing and conferences, is a pro or con. Inconclusive attempts to sell the business should instil caution.

The lure is a lucrative, steady and growing business. Springer boasts 35 percent EBITDA margins and the global trade has grown 3 to 4 percent annually for decades.

The hitch is that researchers increasingly want to liberate knowledge, often publicly funded, from subscription paywalls. Springer reckons it can combine easy access with continued profitability. It is already the leader in “open access”, using alternative models such as charging contributors rather than readers. Why pay? Authors and the institutions that back them want the prestige of appearing in the leading journals in their field.

All that may be true. Yet some open access advocates simply want to squash the industry’s fat margins. That would be gruesome for the publishers. A quick look at Reed, whose shares have returned 63 percent in a year, suggests most investors don’t buy that hypothesis.

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